Wells Fargo takes a pasting, from Congress and a regulator

“YOU HAVE not been able to keep Wells Fargo out of trouble,” Maxine Waters told Tim Sloan, the chief executive of America’s fourth-biggest bank, on March 12th. Ms Waters, the Democrat who since January has chaired the House of Representatives’ Financial Services Committee, is not alone in her ire. Patrick McHenry, the committee’s senior Republican, piled in too. Soon after Mr Sloan faced the panel, the Office of the Comptroller of the Currency (OCC), a regulator, said it was “disappointed” with Wells’s “performance under our consent orders”, corporate governance and risk management. “We expect national banks to treat their customers fairly, operate in a safe and sound manner, and follow the rules of law.” A public dressing-down from politicians is one thing; such a rebuke from a regulator is a true ear-burner.

Over the past three years a series of misdeeds has been uncovered at the San Francisco-based bank. Under pressure to meet demanding sales targets, staff opened 3.5m fake accounts and signed customers up for credit and debit cards without their consent. The bank charged people for car insurance they did not need and overcharged members of the armed forces for refinancing mortgages. Wells has had to set aside money to reimburse foreign-exchange and wealth-management clients. It has even had to refund mis-sold pet insurance.

These transgressions have cost the bank dear. Since 2016 Wells has paid more than $1.5bn in fines to federal and state regulators (including $500m to the OCC), plus $620m to resolve lawsuits brought by customers and shareholders. The Federal Reserve capped its balance-sheet at $2trn in February 2018—a limit that will stay until the Fed is satisfied that Wells has cleaned up its act. At the House hearing Mr Sloan admitted that Wells is operating under 14 consent orders (settlements agreed with regulators without admitting guilt).

Investors are grumbling too. Wells’s share price fell by 24% in 2018 (though it has begun 2019 more steadily). The asset cap, which Mr Sloan expects to stay in place all this year, is starting to bite, while rival megabanks can take advantage of America’s robust economy to lend more. In recent times Wells has enjoyed a higher return on equity than its competitors. Last year it was overtaken by JPMorgan Chase.

Mr Sloan—who assumed the top job in 2016 after his predecessor, John Stumpf, was forced out amid the fake-accounts scandal—insists that Wells has reformed. He told the committee that the offending sales targets have been changed. The 5,300 workers who opened phoney accounts have been sacked. A quarter of Wells’s board members stepped down in 2018.

The result, he claims, is a more customer-friendly bank. For instance, Wells has revised its overdraft rules, to make them more lenient on those who make mistakes. If a withdrawal is made the day before a customer’s monthly pay-cheque clears, the customer will no longer be charged.

But lawmakers and regulators are still furious. “Each time a new scandal breaks, Wells Fargo promises to get to the bottom of it,” said Mr McHenry at this week’s hearing. “But then a few months later, we hear about another case of dishonest sales practices or gross mismanagement.”

Other banks are not guiltless, but in this category of sin Wells has been in a league of its own. In June the same committee quizzed the OCC after it ended an investigation into malpractice at other banks without publishing its findings. It emerged that employees at unnamed banks had opened around 10,000 fake accounts. But that is minuscule next to the tally at Wells.

Even so, there is some small consolation for Mr Sloan: he will not be the only one in the pillory. In April the heads of all America’s large banks are due to testify before Ms Waters’s committee. She is probably just getting started.